Tag Archives: Divest Terror/Terror-Free Investing

Breaking Faith

September 19, 2000Frank Gaffney, Jr.

(Washington, D.C.): Last week, the U.S. ambassador to Israel, morphed from a man who presents his well-established pro-Israeli Labor Party and pro-Arab leanings as the stuff of an “honest broker”¹ into a man who has patently broken faith with Israel. On Friday, Amb. Martin Indyk declared that, when it came to the issue of Jerusalem that has confounded him and his fellow peace-processors, “There is no other solution but to share the holy city….It is not, and cannot be the exclusive preserve of one religion.”

Questions as to whether Indyk was simply free-lancing or acting upon instructions from Washington appeared to be settled when, according to the London Guardian, Khalil Jahshan of the American Committee on Jerusalem, a group that supports the Arab line on the holy city, said: “We are delighted to see a representative of the U.S. government saying publicly what we have heard privately — that there should be a settlement by which all national aspirations are accommodated.”

As it happens, Indyk’s declaration also breaches — as noted in a properly critical analysis circulated on Monday by the Zionist Organization of America — a pledge made by candidate “Bill Clinton in 1992…to recognize all of Jerusalem as Israel’s, and violates the near-unanimous congressional resolution of 1995 calling for U.S. recognition of united Jerusalem as Israel’s capital.” Unfortunately, the political landscape is littered with Mr. Clinton’s broken campaign promises and actions at odds with the law.

Clinton-Gore Embrace Post-Zionism

What sets the Indyk declaration apart is what it says about the Clinton-Gore Administration’s determination to get a “peace” agreement between Israel and the Palestinians at any price, before the President leaves office — and, ideally, before the polls close on the Vice President and Hillary Clinton’s respective campaigns. Under Messrs. Clinton and Gore, the United States has effectively abandoned its traditional support for Israel as the Jewish State and is now actively collaborating with so-called “Post-Zionist” efforts there that may well leave it neither Jewish nor a state.

To be sure, it has in Israeli Prime Minister Ehud Barak a willing collaborator in this assault on the very essence of the Zionist dream. Stung by the wholesale repudiation his government has experienced over the hash-up it has made of peace diplomacy at the hands of his country’s religious and other opposition parties, Barak has declared what amounts to a jihad or holy war on Israel’s Jewishness. His “secular revolution” calls for ending the official practice of honoring the Sabbath by suspending most commerce, El Al flights, bus service, etc. from sundown on Friday until the sun sets on Saturday.

Barak’s Secular Revolution’

Like most of Barak’s actions — and virtually all of those taken by his sponsor in Washington, Bill Clinton — the impetus for these steps and for taking them now is transparently political. By appealing to the large number of Israelis who are non-observant Jews, and to Israel’s Arabs (who are generally hostile to the Jewish character of the state whose citizens they happen to be), Barak evidently hopes to build a new political base. He clearly is calculating that, if he can just secure a peace deal, irrespective of its terms, he can fashion out of this subset of the electorate a working majority in the Knesset, and avoid the repudiation that his opponents have in mind, and history surely has in store, for him.

Barak’s secular revolution is, therefore, of a piece with and a necessary precondition for his abandonment of the position taken by every Israeli government since 1967, namely that a unified Jerusalem is Israel’s eternal capital. If Israel ceases to be the Jewish State, then it follows ineluctably that such a state’s historic attachment to the holy sites of Jerusalem need no longer preclude its government from, in Martin Indyk’s words, “sharing” them with the Palestinians. Welcome to Post- Zion.

Krauthammer’s Critique

Urged on by intense U.S. pressure and inducements, the Israeli Prime Minister has gone well beyond agreeing in principle to recognize Arab sovereignty over parts of the Old City of Jerusalem, however. As Charles Krauthammer noted in a characteristically brilliant essay circulated on September 18 by the Jewish World Review:

“[Barak also] surrendered the Jordan Valley, a strip of barrenness that buffers Israel from the Arab tank armies to the east, [even though his] own Labor Party insisted for 30 years that it could not be ceded without fatally compromising Israel’s security….[And] he conceded the principle that Israel should receive and resettle Palestinians who left their homes 52 years ago in a war started by the Arabs for the express purpose of destroying the newborn state of Israel.

If implemented, these concessions will create new “facts on the ground” that will not only further diminish the Jewish character of the State of Israel — notably by effectively accepting the principle of a “right of return” for millions of Palestinian “refugees.” They may also make it impossible to defend that state against enemies foreign and domestic.

The Bottom Line

For Bill Clinton and his political allies — notably, his hand-picked successor and First Lady — expediency demands an Israeli-Palestinian deal, no matter what the price. He is prepared to promise any amount of financial and military assistance Barak will require in order to sell such a deal at home, especially since all of those bills will come due on somebody else’s watch.

For Israel, however, the stakes are infinitely higher. What Mr. Clinton and his minions like Martin Indyk are pressing the Israelis to surrender is not only the future viability of their state but its Zionist soul. Israel cannot and must not go there, and the American people must not permit their government to compel the Jewish State to do so.

¹Amb. Indyk’s previous antics are chronicled on the Center’s website. See Washington Institute’s Satloff Correctly Assails Mideast Policy Being Forged by Its Alumni, Dennis Ross and Martin Indyk (No. 97-D 185, 2 December 1997); Martin Indyk: Wrong Man, Wrong Job (No. 97-D 137, 17 September 1997); and Center Urges Senator Hank Brown to Hold Martin Indyk to Same Standards as Other Clinton Nominees: Deficient Policy Judgments Reflect on Qualifications (No. 95-P 09, 2 February 1995).

Fed Chairman Greenspan Takes Aim at Use of Capital Markets Leverage to Protect U.S. Security Interests — and Misses

July 20, 2000Center for Security Policy

(Washington D.C.): In a clearly orchestrated gambit, Sen. Phil Gramm
(R-TX) solicited
testimony in a Senate Banking Committee hearing today from Federal Reserve
Chairman Alan
Greenspan in the hope of sandbagging legislation that would create promising new
foreign
policy options in the fight against proliferation. Specifically, Greenspan inveighed against the
use proposed by Senators Fred Thompson (R-TN) and Robert
Torricelli (D-NJ) of access to
the U.S. capital markets to discourage the ongoing, egregious proliferation activities of select
Chinese companies, government-controlled entities and other global “bad actors.”

‘There You Go Again’

Chairman Gramm has made a career lately of seeking the evisceration of export
controls
and other economic sanctions as instruments of U.S. foreign policy. He has similarly
made
clear his determination to thwart the Thompson-Torricelli initiative. Toward that end, he led the
witness with the following set-up speech/question:

Greenspan Responds — and the Casey Institute Sets the Record
Straight

The Fed chairman made three main points in response to Sen. Gramm’s softball:

1) Engagement will solve the proliferation — and other — ‘problems’ with
China:

Chairman Greenspan:

The Casey Institute supports “free trade” and “open-market
economics.” But to
believe that these mechanisms are solving — or can, by themselves, resolve —
China’s
ongoing proliferation of weapons of mass destruction and their long-range ballistic missile
and other delivery systems is not supported by the record.

Indeed, published reports — to say nothing of what U.S. intelligence knows —
establish that
China’s proliferation “dynamic” is proceeding, notwithstanding all the U.S. investment, trade
and other economic assistance going to the PRC. As the Washington Post
editorialized on 14
July 2000:

the United States should make clear that a certain amount of Chinese
missile-making is incompatible with business as usual.

2) Capital controls are undesirable.

Chairman Greenspan:

The Casey Institute has made clear for the four years it has been
pursuing the
Institute’s Capital Markets Transparency Initiative (CMTI) that it is committed to the
preservation and prospering of America’s open capital markets and agrees with Chairman
Greenspan that our markets are pillars of U.S. global leadership and competitiveness.

As a result, the Institute has eschewed capital controls, undue government intervention and
other
measures which could impede the free flow of capital into and out of the United States in favor
of the market-oriented strengthening of disclosure and transparency requirements for foreign
entrants into our markets.

There are certain select circumstances, however, where the temporary denial of access to a
largely unwitting U.S. investor community is justified in order to protect overarching national
security interests and forestall the underwriting of egregious human rights abuses (e.g., genocide
and slave-trading in Sudan). In the case of the Thompson-Torricelli legislation, which is
reportedly going to be expanded to include North Korea and Pakistan, the stakes are nothing
short of the choice between thwarting or abetting proliferation — which President Clinton has
repeatedly determined to be the greatest threat the Nation faces.

3) They’ll Take Their Business Elsewhere — Cost-Free:

Chairman Greenspan:

The Casey Institute: Surely, the Federal Reserve
chairman knows that the U.S. capital
markets are by far the world’s largest source of funds at the most competitive rates
available for international bond and equity offerings. Consequently, if foreign entities
were
to find themselves unable to access the American debt and equity markets, they would find it
difficult to attract, on an annual basis, the substantial funding needed and would likely pay a
premium for such funds as they can attract. These problems would only be
exacerbated if the
reason for such denial of access were on the grounds of national security or egregious human
rights concerns. In all likelihood, such a stigma would also not go unnoticed by rating agencies
(e.g., Moody’s, Standard and Poor’s, etc.)

As the Financial Times reported on 24 May 2000 in connection with the
groundswell of support
building behind the Thompson-Torricelli bill: “It reflects a growing body of opinion
that the
US should leverage the supremacy of its markets to help achieve its policy
goals.” (Emphasis
added.)

A Case in Point: PetroChina

Mr. Greenspan also seems to have missed the recent, real-world experience with a Chinese
concern that experienced this stigma: China National Petroleum Company (CNPC) and
its
contrived subsidiary, PetroChina. Thanks in large part to the efforts of an
extraordinarily
broad-based group of non-governmental public policy organizations known as the PetroChina
Coalition,⁽¹⁾ an initial public offering by CNPC/PetroChina
was delayed by months, dramatically
reduced in size (some 71% below its originally targeted amount of $10 billion) and greatly
increased in cost to the offerers.

Particularly noteworthy was the decision by large U.S. public pension and mutual
funds —
with some $1 trillion under management — to announce publicly their intention to forego
purchases of PetroChina stock due to social pressures, traditional financial concerns
and
intensified “due diligence” problems arising from the politically charged nature of this
transaction. As one would expect, such a decision also translated into an unwillingness on their
part to purchase such “radioactive” shares on overseas markets as well.

The Bottom Line

In sum, the picture painted at Sen. Gramm’s direction by Chairman Greenspan neither
recognizes
the requirement for additional foreign policy tools to address the burgeoning threat posed by
proliferation (not to mention other vital security and human rights concerns) nor properly
portrays the utility of putting transgressors in this area on notice that their access to the U.S.
capital markets could be jeopardized. It was a disservice to the highly regarded Federal
Reserve Board’s chairman to put him in a position whereby he was obliged to expend
valued political capital and personal credibility in opposing a national security and foreign
policy initiative that can work and is urgently needed.

– 30 –

1. See the Casey Institute Press Release entitled
Casey Symposium Affirms Emerging
Importance of Capital Markets Transparency, Leverage on Global ‘Bad Actors’
(No. 00-R 62,
29 June 2000).

Thompson-Torricelli: Security-Minded Legislation to Contend with 21st Century Threats

July 10, 2000Frank Gaffney, Jr.

(Washington, D.C.): In a bit of Freudian repartee at the expense of Secretary of State Albright, President Clinton recently told Russian President Vladimir Putin that “see no evil, hear no evil, speak no evil” perfectly described “Madeleine’s foreign policy.” The fact is, of course, that the buck for defining and directing foreign policy stops with the Commander-in- Chief, not his underlings. No critic could have come up, however, with a more accurate characterization of the Clinton Administration’s modus operandi in international relations.

No Evil’ in China

Nowhere is the phenomenon more clearly evident than with respect to China’s ongoing role as the world’s most aggressive proliferator of weapons of mass destruction and ballistic missile delivery systems. Scarcely a week goes by without some new revelation about the extent of the problem. For example, within the past fortnight, press reports have disclosed that U.S. intelligence believes, in the words of the New York Times, that “China has continued to aid Pakistan’s effort to build long-range missiles that could carry nuclear weapons.” The PRC is also judged to be training Libyan missile experts, as well as building a hypersonic wind tunnel in Libya to be utilized in Quaddafi’s effort to develop long-range missiles. Others believed to be still benefitting from China’s technical and/or materiel help in these areas include: North Korea, Iran, Syria and Sudan.

Unfortunately, the Clinton Administration’s response to such threatening behavior — most of it in direct violation of one or more of China’s formal international undertakings — has largely been to see no evil, hear no evil and most especially speak no evil. It has done so rather than give offense to Beijing or trigger statutory requirements for retaliatory sanctions, including some called for under legislation sponsored by then-Senator Al Gore, Jr. In another of his memorable turns of phrase, President Clinton has called this practice “fudging” the facts.

The effect of such abject unwillingness on the part of the U.S. government to hold the Chinese accountable is increasingly palpable. Beijing has been emboldened by its perception that the Administration will go to any lengths to avoid giving offense to the Middle Kingdom. Should it somehow contemplate doing otherwise, moreover, China is confident that short-sighted American business interests will intercede to ensure that the PRC suffers no appreciable costs.

Thompson-Torricelli

That card is now being played assiduously by the Chinese to thwart bipartisan legislation that would establish real penalties for PRC entities and persons engaged in proliferation activities. It is being offered by Senators Fred Thompson, Republican of Tennessee, and Robert Torricelli, Democrat of New Jersey, with the co-sponsorship of fifteen of their colleagues, including Majority Leader Trent Lott and ex-presidential candidate John McCain.

Specifically, the Thompson-Torricelli bill would require comprehensive annual reports concerning Chinese proliferation activities and those involved in them. Those persons would be subjected to a variety of penalties including: prohibition of access to U.S. arms sales, dual-use technologies, sales to the U.S. government of goods or services and assistance in the form of government loans, grants, credits or guarantees.

In addition, under the Thompson-Torricelli legislation, certain tiered penalties would be applied to the People’s Republic of China itself. They are graduated and time-phased so as to create real disincentives to the Chinese to continue their proliferation activities.

Capital Markets Initiative

Of these, arguably the most important and certainly the most innovative, are sanctions in each of the three tiers that would affect China’s ability to garner billions in undisciplined and largely non- transparent funding from the U.S. capital markets. In the first tier of sanctions, Chinese nationals and state-owned enterprises would be barred from securing U.S. bank loans or floating bond offerings on the U.S. debt market.

If, after one year, the proliferation activities that prompted the first tier sanctions have not been rectified, the President would have the option of denying access for all state-owned enterprises of the PRC to the U.S. capital markets. If after two years the problem has not been corrected, the President would be authorized to deny access to the U.S. capital markets for any company owned or controlled by Chinese nationals.

The salience — and leverage — afforded by these sorts of actions was illuminated last month in the course of a fascinating symposium sponsored by the Center for Security Policy’s William J. Casey Institute.¹ Organizations spanning the political spectrum — from Friends of the Earth and the AFL-CIO to the conservative U.S. Business and Industrial Council — spoke about their highly successful joint efforts this spring to stymie efforts by China’s largest state-owned energy company, China National Petroleum Company (CNPC) and its wholly owned subsidiary, PetroChina, aimed at garnering ten billion dollars in an Initial Public Offering on the New York Stock Exchange.

The Casey Symposium heard forceful warnings from, among others, Senator Thompson and his Republican colleague, Sen. Sam Brownback of Kansas, to the effect that — in the absence, at a minimum, of far greater disclosure and transparency on the part of Chinese and other foreign entities coming to the U.S. market, American investors could unwittingly wind up underwriting odious activities like CNPC’s support for the government of Sudan. It was also observed that if, pursuant to the Thompson-Torricelli legislation, the U.S. government were to deny access to its capital markets to such Chinese bad actors, it can do so without the sort of adverse impact on American jobs, exports and people-to-people contacts that are routinely cited by interested parties (like agribusinesses, aerospace companies and the U.S. Chamber of Commerce) in their opposition to trade sanctions legislation.

The Bottom Line

Far from welcoming an approach that would give the President a vast new array of options — options that he can waive on national security grounds if he deems it appropriate to do so — the Clinton- Gore Administration and the rest of the China Lobby are vehemently opposing the Thompson-Torricelli bill. They prefer to see no evil and pretend that their preferred policies of appeasement of China are translating into reduced proliferation.

The fact of the matter is the greatest threat the United States is likely to face in the years immediately ahead arises from China and its clients and their deadly trade in weapons of mass destruction and long-range delivery systems. Senators Thompson and Torricelli are to be commended for their courage and creativity in devising mechanisms for imposing real costs, at last, on the PRC for its proliferation behavior in a way that can entail minimal costs for American trade and other interests.

¹See the Casey Institute Press Release entitled Casey Symposium Affirms Emerging Importance of Capital Markets Transparency, Leverage on Global Bad Actors’ (No. 00-R 62, 29 June 2000).

With PNTR Approved, U.S. Capital Markets Take Center Stage Thompson Legislation Focuses on Proliferators’ Access

May 25, 2000Center for Security Policy

(Washington, D.C.): As the Clinton Administration celebrates its foreign policy victory over
human rights-, religious freedom- and national security-minded opponents of Permanent Normal
Trade Relations (PNTR) with China, yesterday’s Financial Times signaled that the
Administration and its allies’ efforts to insulate Beijing from future penalties for its proliferation
and other odious activities may prove far from complete.

The attached article makes clear that a new “foreign policy
tool” is emerging — one that might
fill the growing vacuum that would arise if the House vote approving PNTR has the effect of
eviscerating the use of U.S. trade sanctions for such purposes. Specifically, the FT
reports a
rising interest in the United States Senate, among other places, in putting at risk, or
denying
outright, access to the U.S. capital markets for proliferators and other wrong-doers.

The prime-movers behind this initiative at the moment are Senators Fred
Thompson (R-TN)
and Robert Torricelli (D-NJ), the chairman and a senior Democrat
respectively on the Senate’s
Governmental Affairs Committee. They have announced their intention to offer an amendment
to the PNTR legislation. As the FT put it, “the Thompson[-Torricelli] amendment
reflects a
growing body of opinion that the U.S. should leverage the supremacy of its [capital] markets to
help achieve its policy goals.”

The Thompson-Torricelli legislation underscores the burgeoning recognition that, at the
dawn
of the 21^st century, the bulk of the world’s available development capital resides in
the U.S.
markets. Accordingly, any contraction of access to the U.S. markets with respect to foreign
governments and/or entities — due to weapons proliferation or other national security and human
rights abuses — could well prove extremely costly for the perpetrator. This is primarily because
the private markets have become the preferred and, in some cases, the required
source of funding
for both foreign governments and larger enterprises. The dominance of the U.S. markets is
sufficient to ensure that efforts to “work around” restricted U.S. market access would probably
fail to yield desired funding levels at acceptable costs over time.

The Thompson-Torricelli initiative has momentum, thanks to the recent debilitating
experience
of one major Chinese enterprise as it sought last month to tap the resources of the U.S. capital
markets. As the Financial Times put it:

successful
opposition

ad hoc

The Bottom Line

Among the decided advantages of the ground-breaking financial sanctions being proposed by
Senators Thompson and Torricelli is the fact that — in contrast to trade sanctions — they do not
implicate or disrupt U.S. exports, jobs or people-to-people contacts in most cases. In light of the
declining willingness of policy-makers to exercise the latter instruments for these reasons, the
tools provided for by the Thompson-Torricelli “China Non-Proliferation Act” amendment
deserves expedited and positive consideration by the Congress.

Foreign Policy in U.S. markets
Financial Times, 24 May 2000
By Thomas Catn, Joshua Chaffin and Stephen Fidler

May 25, 2000Center for Security Policy

To enforce its will around the world, Washington has traditionally relied on the
time-honoured
trade embargo. But under a new set of legislative proposals, the US could also start to use its
capital markets as a foreign policy tool.

Fred Thompson, a Republican senator from Tennessee, is preparing to introduce an
important but
little-noticed amendment to the current bill to grant China permanent normal trade relations. The
measure would call on the president to submit an annual review of China’s record on weapons
proliferation and impose a graduated series of economic sanctions for any transgressions. At their
most severe, these would prohibit companies owned by Chinese nationals from raising funds on
US debt or equity markets.

The proposal’s chances of becoming law do not appear great, but it reflects a growing body
of
opinion that the US should leverage the supremacy of its markets to help achieve its policy goals.

Last year’s Cox committee report concluded that China is using US capital markets as a
source
of military funding and a way to disguise efforts to acquire sensitive US technology. Another
report, prepared by former CIA director John Deutch, also concluded that the US “is not making
optimal use of its economic leverage in combating proliferation”.

“Trade sanctions are only one of the economic tools at our disposal,” the report said. “Access
to
US capital markets [is one of] the wide range of economic levers that could be used as carrots or
sticks as part of an overall strategy to combat proliferation.”

Supporters point to the four-decade US trade embargo against Cuba, which has failed in its
aim
to topple Fidel Castro while costing US industry untold business opportunities. In contrast,
capital market restrictions are a targeted economic sanction that avoids “collateral damage” to
US companies, they say.

This year, proponents have been emboldened by the successful opposition to a planned initial
share offering by PetroChina, the main operating subsidiary of China’s biggest oil company.
After an ad hoc coalition of left-leaning protest groups and conservative national security types
united against it, PetroChina was forced to scale back its offering from $10bn to just $2.9bn.

Now, with the battle raging over permanent normal trade relations with China, Sen
Thompson is
trying to draw attention to what he says is the country’s record in helping rogue nations acquire
weapons of mass destruction. “It makes no sense for us to consider this trade issue in total
isolation from the real world that we live in,” he said.

“If we give the signal that we’re more interested in the dollar than our own security, it’ll have
all
kinds of ramifications.”

Sen Thompson insists that his proposals apply only to China, “which our intelligence
community
tells us is leading the pack in terms of proliferation activities.” However, such a law would
clearly set an important precedent for other nations – and possibly US companies.

The US Treasury has long held that there should not be restrictions on who can raise money
in
US markets, arguing that blocks would merely push the activity elsewhere. But recent events
have raised the idea’s profile.

“Prior to PetroChina, people had not thought about the security implications for our capital
markets,” said Frank Gaffney, president of the William J. Casey Institute.

“We believe investors are entitled to know what kind of transactions these countries are
involved
in.”

China’s Mythic Market
By Alan Tonelson
The New York Times, 18 May 2000

May 18, 2000Center for Security Policy

Trade agreements cannot bring widespread benefits to the United States if they rest on false portrayals of our trade partners and of American business objectives. Americans learned that the hard way after the North American Free Trade Agreement, when Mexico turned out to be less than the rapidly prospering paragon of good government touted by President Clinton and his allies in big business. Today, the same coalition is pushing for permanent normal trade with China, with the House Ways and Means Committee approving the proposal yesterday.

The proponents would like us to believe that China is a booming market for American-made products. But although our exports of goods to China rose significantly during most of the 1990’s, they grew no faster than such exports to the world as a whole, and China still accounts for less than 2 percent of the total. In 1999, these sales to China actually fell by 8 percent. One-sixth of the sales to China, moreover, are of a single product: large commercial jets.

Chinese trade barriers are to blame, but so is a weakening Chinese economy. The growth rate has slowed by at least half in recent years. Even the official Chinese press pegs unemployment at 17 percent, and with real wages down since the mid-1990’s, Chinese who have jobs are hoarding their earnings, not buying consumer goods.

The Web sites of American multinational corporations, meanwhile, barely mention selling from their American-based factories to China — which might benefit American workers. Instead, they gush about turning the People’s Republic into a low-wage production base. Procter & Gamble, Motorola and Westinghouse state openly on their sites that they plan to substitute Chinese parts and materials steadily for the American-made ones they still send to China to put into finished goods. The predictable result is loss of high-wage American manufacturing jobs.

Meanwhile, companies like General Electric, Kodak, Dow Chemical and Ingersoll-Rand have indicated that they will displace American jobs by supplying the domestic market and markets in other countries with exports from their Chinese factories.

Nor are American companies’ China operations likely to do much to expand free markets. Most deals are in aerospace, telecommunications, utilities and transport, which in China are dominated by government agencies and state-owned companies. Motorola even says that its China business strategy “dovetails with the Chinese government’s strategy for upgrading state-owned enterprises.”

Increasingly, according to trade statistics, China is also not a primitive giant, producing labor-intensive goods that Americans should no longer even want to make. Between 1992 and 1999, high-tech products as a share of China’s exports to the United States more than tripled, to 14.5 percent; they rose more than 32 percent just last year. In contrast, American high-tech products rose only from 34.5 percent to 35.9 percent of our total exports to China. And they fell 18 percent in absolute terms in 1999. These figures do not even count our steadily rising imports of industrial machinery and other capital-intensive goods from China.

Further, thanks to planned investments by companies like Cisco, 3Com, Lucent, Microsoft, United Technologies, Motorola and Texas Instruments, if Congress approves normal trade with China, expect American and world markets to be flooded with ever higher-tech Chinese goods: broadband routers, telecommunications switches, semiconductors, servers, applications software and aerospace engine parts.

Perhaps the most frequently heard argument in favor of permanent normal trade relations with China is that without it, we will lose the China business to foreign competitors. That might be a worry if China consumed most of what it imports. But studies by the New York Federal Reserve Bank and others show that most Chinese imports are intermediate goods that are assembled into finished products in China and then sent to foreign markets. Some 40 percent of China’s exports are sold to the United States.

This means that the success of investments in China by American companies and their competitors alike depends heavily on exporting to the United States. Without easy access to their largest market, the projects in China would nosedive in value. The keys to keeping them valuable are permanent normal trade status and admission of China into the World Trade Organization, whose cumbersome procedures can keep the American market wide open.

Proponents of normal trade hope to obscure these realities with toothless amendments to the deal. But the public’s perception of normal trade with China remains on the mark: a possible bonanza for management and shareholders, at least in the short term, and nothing but trouble for workers.

Alan Tonelson, research fellow at the United States Business and Industry Council Educational Foundation, is author of the forthcoming “The Race to the Bottom.”

Enriching China Unlikely to Advance U.S. National Security

May 3, 2000Center for Security Policy

(Washington, D.C.): In recent days, President Bill Clinton and his National Security Advisor, Samuel Berger, have asserted that U.S. national security requires that China receive Permanent Normal Trade Relations (PNTR) status. The stridency with which they have adopted this line suggests that — despite the favorable “spin” proponents of PNTR are giving their prospects for success when the House of Representatives votes on that legislation on or about 22 May — they are having trouble overcoming skepticism concerning claims that the American economy will benefit greatly from China’s entry into the World Trade Organization (WTO). Unfortunately for the White House and its business and other allies, it is unlikely that a dangerous China will become less so if it has even more resources at the disposal of its military-industrial and security services.

To the contrary, past and present Chinese behavior — notably the following activities — strongly suggests that Chinese hardliners are exercising full control over the regime. They will likely redouble these and other efforts if they are, in effect, rewarded for them by being spared yearly NTR reviews.

A Bill of Particulars

China’s Long-term Strategy seeks to dominate Asia and become a global superpower. It is pursuing these goals with patience and determination. The People’s Liberation Army sees the United States as “the main enemy” and the only impediment to accomplishing this goal.

This strategy was brilliantly dissected recently by Mark Helprin in a recent edition of National Review entitled “East Wind.” Of particular note is Helprin’s discussion of the vital role that economic expansion plays in this strategy as summarized in Deng Xio Peng’s “16 Character” diktat which calls on the Chinese people to “Combine the military and civil; combine peace and war; give priority to military products; let the civil support the military.” No one should be under any illusion: Beijing envisions using its economic expansion to fuel its military buildup and expansionist ambitions.

Penetration by PLA- and Chinese government-affiliated entities of our capital markets: The problem posed by China’s economic program is not limited to trade. China is, among other things, making an increasingly aggressive bid to penetrate the U.S. capital markets — one of this Nation’s last great monopolies.

As incredible — not to say absurd — as it may seem, U.S. pension funds, mutual funds, life insurance, corporate and private portfolios are all seen as sources of cash with which China can put our interests at risk. A case in point is an Initial Public Offering issued by PetroChina, a subsidiary of the PRC’s largest energy company — an entity providing resources that are allowing Sudan’s government to engage in activities from genocide to slave-trading to support for terrorism and the proliferation of weapons mass destruction. For companies like PetroChina, other state-owned and -affiliated “bad actors,” the vast resources of the U.S. debt and equity markets represent “found money” — funds that are undisciplined and largely non-transparent. It must be asked: To what uses will they be put?
China’s Military Modernization Program: A principal beneficiary of course is China’s military, which aspires to make what Mao once described as a “Great Leap Forward.” The PRC’s long-term strategy calls for the People’s Liberation Army to achieve a massive modernization program capable of transforming its 1950s and ’60s vintage equipment and tactics into those at the forefront of the 21st Century. In the hope of accomplishing this enormous task as rapidly and as inexpensively as possible, Beijing is taking maximum advantage of technology acquired legally or illegally from us, as well as through a growing strategic axis with Russia.
Of particular concern is the emphasis being placed by the People’s Liberation Army on a doctrine that envisions using asymmetric means and technologies to counter American military power. Thus we see China pursuing: Information Warfare; weapons of mass destruction and long-range ballistic missiles; advanced nuclear-armed anti-ship missile systems from Russia designed to destroy American carrier battle groups; electro-magnetic pulse weapons; etc., rather than concentrating (for now at least) on building up conventional forces comparable to our own.
The PRC’s Regional Agenda: The Chinese are assiduously dividing and intimidating U.S. allies in the region — Taiwan, Japan, the Philippines, South Korea. They are doing this in a variety of ways, for example, by abetting North Korean belligerence and Pyongyang’s long-range ballistic missile program, as well as by brandishing their own ability to attack even American cities like Los Angeles with nuclear weapons.
This campaign is designed to impress upon our democratic allies that the United States is a declining and unreliable power and China a rising one in the Western Pacific and East Asia. In the absence of credible American security guarantees, China is running what amounts to a protection racket, impressing upon our friends that Beijing’s help will be needed to counter North Korean and other regional threats.

The Chinese military is also exhibiting increasing assertiveness around the Pacific Rim and Asia — from Pakistan, to Myanmar, to Malaysia, to Taiwan and the Philippines. It is actively establishing bases, intelligence collection facilities and other dominant positions from which to project power.
China’s espionage: The former long-time chief of the FBI’s Chinese counter-intelligence unit, Paul Moore’s made the point in a powerful op.ed. article in the New York Times last August that the PRC is pursuing a comprehensive, patient and deadly approach to intelligence collection against this country. In so doing, he notes, Beijing appeals to and/or coerces overseas Chinese to help in that effort.
Mr. Moore explained in his essay that such practices make it very difficult to catch, let alone to prosecute successfully someone like Wen Ho Lee, suspected of spying at Los Alamos. Such individuals generally are not doing it for the money, fancy cars or bigger houses. They may not even be aware of exactly what they are doing. This makes for a huge — and possibly insoluble — counter-intelligence challenge.
China’s penetration of our hemisphere: This problem has been much in the news lately, from Long Beach and Palmdale here in California to strategic bases at either end of the Panama Canal. There are estimated to be several thousand front companies working for the People’s Liberation Army and/or Chinese intelligence services in this country. The Chinese are also actively engaged in drug, alien and arms smuggling into the US. They are also actively insinuating themselves in an ominous fashion into other parts of the Western hemisphere including: Ecuador, Venezuela, Brazil, Mexico and Cuba.
Chinese proliferation: The PRC is the leading exporter of weapons of mass destruction and ballistic missile technology to dangerous developing nations — nations they see not as we do, as “rogue states” but as clients. Indeed, Beijing sees such trade as more than simply a means of securing vital energy resources from oil-rich countries like Libya, Iraq, Iran and Sudan.
The Chinese also understand that, by building up the offensive power of these states, as well as that of Cuba and North Korea, their clients can help buy the PRC freedom of maneuver by distracting, tying up and otherwise stressing the world’s one global power, the United States. Proliferation can also prove helpful in increasing pressure on America’s democratic and other allies to seek China’s influence and protection. Israel’s sale of powerful early warning aircraft and other advanced weapons technology is a case in point.

PRC efforts to increase the forces of instability around the world has even had the effect of augmenting China’s leverage on the United States as we seek its help in controlling such threats.
China’s penetration of our political system: Last, but hardly least, there is the matter of illegal Chinese campaign contributions to the Clinton-Gore campaigns. Is it a coincidence or is it cause and effect that Clinton has made momentous changes in granting China access to satellite and missile technology, supercomputers, embraced Beijing’s position on Taiwan, largely ignored the PRC’s violations of human rights (recently it failed to secure votes in Geneva for resolution condemning China’s record), given China access to the WTO, etc.?
Such behavior on the part of China is all the more worrisome because it comes against the backdrop of significant internal unrest in China. Will Beijing engage in what the political scientists call “social engineering” — using phony claims of “external aggression” as a pretext for imposing greater control at home and diverting public anger from a failed government to foreign “barbarians”? Will China actually accelerate its timetable for using force against Taiwan, leading to conflict with the United States?

The Bottom Line

It is unlikely that the American economy as a whole will, on balance, benefit from granting China Permanent Normal Trade Status. There is, however, no chance that a China engaged in such an ominous array of malevolent activities while it is, at least nominally, subject to close annual scrutiny as part of the Normal Trade Status review process will become less of a threat to U.S. national security once that leverage no longer exists. Representations to the contrary are cynical, reckless and a disservice to the very important debate about PNTR now taking shape.

Broad-Based Coalition Plays Pivotal Role in PetroChina’s I.P.O. — And Market’s Bleak View of Chinese State-Owned Enterprises

April 13, 2000Center for Security Policy

(Washington, D.C.): In the wake of the dismal performance of PetroChina’s initial public offering (IPO) on the New York Stock Exchange last week — in which, following a day of intervention by the issue’s investment banker, Goldman Sachs, it lost 7.5% of its value — a surprising explanation has emerged: Market forces alone were at work.

While it is certainly true that American investors have sensibly recoiled from this offering by a subsidiary of China National Petroleum Company (CNPC) — a quintessential “old economy” dinosaur that has labored under a bloated payroll of some 1.2 million employees, it is worth remembering how PetroChina came into being: It was hastily configured in the hope of finessing policy objections arising from a bid to penetrate the U.S. capital markets by a company like CNPC, with its close ties to the terrorist-sponsoring, weapons of mass destruction proliferating, slave-trading and genocidal government of Sudan.

PetroChina subsequently ran into its own policy controversy, thanks to its reported intentions to lay off up to 800,000 workers, its plan to despoil Tibet and its complete operational and financial subordination to CNPC and, in turn, to its owner — the government of China. These problems were much in evidence at a press conference held on the eve of the 6 April introduction of the PetroChina IPO on the NYSE and sponsored by a number of organizations who had joined forces in an unprecedented, broad-based coalition forged to oppose this ill-considered initiative.

The following were among the members of this ad hoc coalition who participated in the National Press Club event on 5 April: Ron Blackwell, Director of Corporate Affairs, AFL-CIO; Dr. Charles Jacobs, President, American Anti-Slavery Group; Braden Penhoet, Esq., Center for International Environmental Law; Nina Shea, Director, Freedom House’s Center for Religious Freedom; Michelle Chan-Fishel, International Policy Analyst, Friends of the Earth; John Ackerly, President, International Campaign for Tibet; Sophia Conroy, Member of the Board of Directors, Students for a Free Tibet and National Coordinator, US-Tibet Committee; Kevin Kearns, President, U.S. Business and Industrial Council; and Roger W. Robinson Jr., Chairman, William J. Casey Institute of the Center for Security Policy.

Mr. Robinson, whose long-time concerns about the national security implications of this sort of penetration of the U.S. debt and equity markets made him a force behind this coalition, used the occasion to underscore the substantive issues that were to bring such grief to the PetroChina IPO and — as the attached article published in Monday’s Investor’s Business Daily makes clear — for other global “bad actors.” Highlights of his remarks included the following:

The near-meltdown of the PetroChina initial public offering (IPO) — which was downsized by over 70% from the originally-targeted amount of $10 billion last fall — was, in large part, catalyzed by the activities of a broad-based opposition coalition, several members of which are here today.
Efforts to attribute exclusive — or even primary — responsibility for this draconian decline in U.S. investor interest to traditional market considerations are misplaced, as a number of leading financial publications have made clear. The indefinite postponement over the weekend of the estimated $6 billion Sinopec IPO (scheduled to come to New York in June) and the Boashan Iron and Steel IPO envisioned for this month or next (anticipated to be in the neighborhood of $1-2 billion) were reportedly a direct result of this historic and intense PetroChina controversy.
As a result, the total amount of foregone capital to have been raised by Chinese state-owned firms in the U.S. equity market in this time-frame was some $15 billion. What is more, as much as half of the PetroChina deal had to be privately placed with so-called “strategic Hong Kong investors” (read, those under Beijing’s influence), Hong Kong “Red Chip” companies and BP Amoco.
The message is clear: Henceforth, the definition of “market forces” and the scope of “due diligence” risk assessments conducted with respect to foreign firms seeking to enter the U.S. capital markets will need to be expanded — preferably on a voluntary basis — to include potent, new “non-financial” concerns, notably those involving national security and human rights. In addition, transparency and disclosure requirements for such foreign entrants to the U.S. capital markets need to be strengthened.
Finally, the lessons of the PetroChina dispute should be integrated into public pension fund purchasing decisions as well as the deliberations of other international portfolio managers. The Casey Institute of the Center for Security Policy has been pursuing this broader agenda, under our “Capital Markets Transparency Initiative,” for some four years. We are pleased to have been joined in this effort by so many others, including those represented here. We also look forward to continuing to provide financial and national security expertise to build on our success to date.

Diverse Congressional Group Appeals to President Clinton to Halt PetroChina I.P.O.

April 4, 2000Center for Security Policy

(Washington, D.C.): An important new front has been opened in the campaign to stop global
“bad actors” from penetrating the U.S. capital markets: On 31 March, an astonishingly
broad-based group of 26 Members of Congress wrote President Clinton urging him to
“block any
Initial Public Offering brought to the U.S. capital markets by China National Petroleum
Company (CNPC) and/or [its subsidiary,] PetroChina, until an acceptable use of the
proceeds therefrom has been assured.”

This compelling letter (see the attached) represents an
unprecedented development in the history
of America’s debt and equity markets — particularly with respect to a deal that has not yet
come
to market. Highlights of the authors’ arguments include the following:

“Given CNPC’s track record, it seems likely that — in purchasing these securities —
American investors will unwittingly be underwriting activities that contravene official
U.S. policy and its widely held principles and values.”

“A brief review of the troubled history of this listing should immediately raise a
red flag
of concern. CNPC initially sought to list on the NYSE but its proposed IPO met with
legitimate criticism on the basis that monies raised in this country would likely be diverted, at
least in part, to the Khartoum regime in Sudan. CNPC owns a 40% stake in Sudan’s Greater
Nile Petroleum Operating Company. The link between the revenues generated by CNPC and
the Khartoum regime’s ability to increase the intensity and lethality of its civil war is a matter
of record.”

“PetroChina claimed that this IPO’s $5-7 billion in proceeds would be directed to oil and
gas
development in China. Assuming the veracity of this disclosure, these efforts would
pose
a direct threat to the population, resources and fragile environment of the Tibetan
Plateau.”

The Bottom Line

The 26 legislators conclude with a point routinely made — and strongly endorsed — by the
Casey
Institute: “While we fully support the free flow of capital into and out of this
country’s debt
and equity markets, we nevertheless believe that raising capital from the U.S. investor
community to help underwrite the ravaging of Tibet’s natural resources is no more
acceptable than the prospect of aiding the Sudanese government’s genocidal civil war.”

Tomorrow, on the eve of PetroChina’s first day of trading on the New York Stock Exchange,
a
coalition of diverse public policy and other groups opposing the PetroChina deal — whose efforts
to date have substantially contributed to the draconian downsizing of the IPO from $10 billion to
$2.9 billion — will convene a press conference in the Lisagor Room on the 13^th
floor of the
National Press Club at 12:30 p.m. This unprecedented, broad-based coalition will be discussing
their respective strategies and plans for the future. The Chairman of the William J. Casey
Institute, Roger W. Robinson, Jr., who provided critical financial expertise underpinning the
coalition’s efforts will be among those making brief remarks.

Senior Legislators Press S.E.C.’s Levitt on PetroChina IPO — Missives from Reps. Oxley and Baucus Should be Wake-Up Call to S.E.C., U.S. Investors

March 17, 2000Center for Security Policy

(Washington, D.C.): The rising crescendo of opposition to the bid by China National
Petroleum
Company (CNPC) to penetrate the U.S. capital markets reached new heights in recent days —
i.e., at senior levels on Capitol Hill. Specifically, two chairmen of relevant House
subcommittees
in letters to the Chairman of the Securities and Exchange Commission, Arthur Levitt, Jr.,
signaled serious concerns about the multi-billion dollar Initial Public Offering CNPC’s wholly
owned subsidiary, PetroChina, is expected to offer after listing next month on the New York
Stock Exchange.

The first missive to hit the SEC chairman’s desk was sent on 7 March over the
signatures of
Representatives Michael Oxley (R-OH), Chairman of the House Commerce
Subcommittee on
Financial and Hazardous Materials — which has direct oversight over the SEC — and
Spencer
Bachus (R.-AL), Chairman of the House Banking Subcommittee on Domestic and
International
Monetary Policy. Noting that there is “considerable controversy surrounding this proposed
IPO,” the Oxley-Bachus letter laid down a clear marker for Chairman Levitt: “To ensure
that
investors have full and accurate information regarding this public offering, we request
your
assurance that all requirements under the Securities Act of 1933 have been met, in
particular
the required disclosure relating to the intended use of proceeds from the offering.”
(Emphasis
added.)

In order to amplify and reinforce the concerns that prompted the 7 March
correspondence,
Representative Bachus sent the following, more detailed communication to Chairman Levitt on
16 March. It raises questions about the lack of transparency associated with the draft
prospectus now being circulated for the PetroChina IPO — involving, among other things, both
serious omissions and potentially problematic commissions concerning the use of the proceeds
and their users. Rep. Baucus is to be commended for his call for a “thorough
investigation” by
the SEC of “the prospect that many other foreign companies utilizing the American capital
markets to finance activities that are directly opposed to vital U.S. interests…in order to ensure
that…SEC procedures …are appropriate for guarding our vital national interests.”

March 16, 2000

Arthur Levitt
Chairman
U.S. Securities and Exchange Commission
450 Fifth Street, NW
Washington, D.C. 20549

Dear Mr. Levitt:

I am writing to express my serious concerns about the proposed PetroChina IPO that was
registered with the SEC on Monday, February 28, 2000. My primary concern is that there has
been insufficient disclosure of the potential risks to investors and of the intended use of the
proceeds. The use of proceeds section does not provide meaningful disclosure of the actual use
of the proceeds by PetroChina nor the extent and use of the proceeds that would accrue to CNPC.
The PetroChina filing also fails to mention the widespread reports of a divestment campaign or
the realistic possibility that future sanctions could materially affect the value of its shares.

My second concern is that there may have been violations of the proper procedures for SEC
filings based on the events that have already occurred during the processing of this proposed
IPO. As a result of these two concerns, I am requesting that you require an extended three month
period of review before the registration becomes effective and that you decline any request to
accelerate the effective date. This delay is necessary so that the SEC will have enough time to
determine whether sufficient disclosure has been provided to potential investors and that no
irregularities occurred in the registration process for the PetroChina IPO.

As you are aware, PetroChina is a subsidiary largely owned by the China National Petroleum
Corporation (CNPC), which is itself a state-owned entity controlled by the government of the
People’s Republic of China (PRC). CNPC has extensive dealings in countries that are currently
under United States sanctions, such as Sudan and Iran, and American companies or persons are
legally prohibited from direct or indirect business dealings with these countries to protect vital
U.S. national interests.

In particular, CNPC is the largest investor in one of Sudan’s most profitable enterprises, and
provides vital hard currency for Sudan’s government, the National Islamic Front (NIF). You
should be aware that oil revenues largely support and finance NIF’s egregious violations of
human rights. There is no question that oil revenues are an integral part of NIF’s genocidal war
on its own population. The Khartoum regime has waged a relentless 17-year war killing over
2,000,000 residents, who are primarily innocent civilians.

The connection between oil revenue and violations of law has been widely recognized in
Sudan
as well as other countries under U.S. sanctions. For instance, with respect to Iran in 1995,
President Clinton’s former Under Secretary of State for Policy said, “”A straight line links Iran’s
oil income and its ability to sponsor terrorism, build weapons of mass destruction, and acquire
sophisticated armaments. Any government or private company that helps Iran to expand its oil
must accept that it is contributing to this menace.” Indeed, Sudan’s government is using its oil
revenue to prosecute a vicious genocidal war against Sudanese Christians living in the southern
portion of that country, as well as sponsor acts of international terrorism.

It appears that PetroChina’s registration statement provides insufficient disclosure in several
respects. In its filing, PetroChina proposes three separate, but relatively undefined uses for the
proceeds: an unspecified amount for undisclosed “capital expenditures and investments,”
repayment of short and long-term borrowings to undisclosed “third party financial institutions,”
and “additional funds for general corporate purposes.” In addition, CNPC will receive an
undisclosed amount of funding and will use those funds to repay an unspecified amount of
“borrowings” (the underlying activities which these borrowings funded is also unknown), and to
“fund the employee retraining and severance plans established in connection with the
restructuring of the CNPC group.”

It is obvious from these proposed uses of proceeds that CNPC stands to gain substantially
from
the PetroChina IPO. A recent news article stated that CNPC would receive payments between $1
billion and $1.5 billion from PetroChina. In addition, PetroChina is assuming a large portion of
the debts formerly owned by its parent, CNPC. There is no question that this will significantly
increase CNPC’s access to financing that would otherwise be unavailable to fund its foreign
operations. Therefore, the direct transfer of funds and assumption of old CNPC debt will
significantly and materially aid CNPC in that it will now be able to use its current or future
revenues to finance its foreign operations.

Because of the substantial revenue and debt sharing between the parent and its subsidiary, it
is
essential that the investor community be fully apprised of the growing controversy surrounding
the activities of PetroChina’s parent by a coalition of human rights, religious freedom, labor, and
national security groups. There are numerous press reports about these activities that I would be
pleased to share with you.

In addition, there is a significant possibility that future sanctions could be imposed on
PetroChina (or on its parent CNPC, which would materially affect the subsidiary) similar to
those recently imposed on the joint oil venture Greater Nile Petroleum Operating Company Ltd.
(GNPOC) or Sudapet Ltd. Currently, engaging in business with GNPOC or Sudapet carries
criminal penalties for corporations and individuals, as well as the possibility of imprisonment for
up to 10 years. As you are already aware, CNPC is the largest investor and partner in GNPOC.
If these or other forms of sanctions were later extended to CNPC, there is no question that they
could materially affect the value of PetroChina stock. All potential investors should be made
aware of these possibilities and the ultimate use of the proceeds before you approve this
transaction.

A number of questions have also arisen from the process through which the IPO was created.
First, this proposed issue was originally to be a $10 billion IPO for CNPC but has been changed
several times to the current estimated $5 billion IPO for PetroChina, its newly created subsidiary.
Goldman Sachs, the IPO’s primary underwriter, submitted its registration statement for the new
PetroChina subsidiary to the SEC on Tuesday, February 29, 2000, after which the “quiet” or
“waiting period” officially began. As you are aware, while oral statements are permitted during
the waiting period, it is clearly understood that no written OR oral statements or solicitations
may be made before the registration statement is filed. Various sources have reported, however,
that Goldman Sachs may have used “research groups” or other venues to discuss information
about the IPO with potential investors. We request that you investigate whether any information
has been provided to potential American investors that would dispose them to have a more
favorable view of investing in the PetroChina offering.

Using “research groups” or other techniques to educate potential investors before filing with
the
SEC, instead of the usual “road show” after an SEC filing, would not only skirt the law, but
would also violate the spirit of proper disclosure policy. While these facts remain
unsubstantiated at this time, various press reports and additional assertions made to my staff
indicate that some disclosure may have occurred in violation of proper procedures.

Furthermore, there is no record of any preliminary filings with the SEC, despite indications
that
various draft proposals were submitted to the SEC. In addition to various press reports, some
evidence of this was obtained in the course of a congressional staff inquiry that occurred prior to
PetroChina’s February 28, 2000 filing with the SEC. Several days before the first recorded
filing with the SEC, a spokeswoman for Goldman Sachs stated that the PetroChina documents
had been filed with the SEC and that no questions could be answered because the quiet period
had already begun.

While we share your desire to have a free flow of information between SEC staff and
attorneys
preparing the IPO filings, it is important not to avoid disclosure requirements or the Freedom of
Information Act. Therefore, it would be helpful if the SEC were to clarify the proper procedures
for an “informal” waiting period during which drafts of SEC filings are reviewed by the SEC
staff and changes made before any formal filing is submitted. At the minimum, there should be
some record in the EDGAR database indicating that an initial filing has been made from the very
first moment that documents are provided to SEC staff. Requiring electronic filing for foreign
corporations in the same way that they are required for domestic filings would be a simple
solution to this problem.

One final but important concern regarding the PetroChina filing process is Goldman Sachs
ability to freely disseminate information regarding the proposed IPO abroad, while being
prohibited from doing so domestically. Given the multi-national nature of many of the IPO’s
potential corporate investors, it is virtually impossible to avoid having information provided
widely in Hong Kong reach the desks of targeted investors here in the United States.

In closing, my primary concern remains the question of whether proceeds from the
PetroChina
IPO will be used to benefit the activities of CNPC, which could compromise American national
interests and possibly circumvent U.S. laws regarding sanctions against Sudan. By way of
example, an earlier version of the proposal would have required PetroChina to pay a dividend to
CNPC of $1 billion to $1.5 billion and to CNPC’s retirement or worker retraining obligations.
PetroChina’s current registration statement indicates that an unspecified sum will be paid to
CNPC, that an unspecified amount of CNPC debt will be assumed, as well as providing for
payments to CNPC for other purposes. These facts eviscerate the assertion that a legal firewall
has been created to segregate the funds generated by the IPO for PetroChina’s purely domestic
activities. It seems likely that the billions raised will either subsidize the overseas operations of
the parent company or, due to the fungibility of money, at least indirectly finance CNPC’s
overseas operations by freeing it of debt or other obligations.

With the prospect of many other foreign companies utilizing the American capital markets to
finance activities that are directly opposed to vital U.S. national interests, it is imperative that
you investigate this matter thoroughly in order to determine those SEC procedures that are
appropriate for guarding our vital national interests.

Sincerely,

Spencer Bachus
Chairman
Monetary Policy Subcommittee